How will rising inflation and higher interest rates affect your savings?

Soaring prices of, in particular, natural gas, power and food products have led to rising inflation. This affects your day-to-day finances – and your pension savings.

The high level of inflation is prompting central banks in both Europe and the USA to hike interest rates, which makes it more expensive for us as consumers to borrow money. When it becomes more expensive to borrow money, we spend less. This combines to dampen economic activity and thereby reduce inflation and prevent it from taking hold.

However, central banks’ fight against inflation comes at a price. The prospects of central banks hiking interest rates and perhaps ultimately triggering a severe economic downturn have already sent both equity and bond prices markedly lower. This has affected your savings.

Your savings may go down
Your savings are invested in equities, bonds, real estate and infrastructure (e.g. wind turbines, new roads and bridges). In times of uncertainty – such as the current situation of a war and financial crisis – equities typically lose the most value, but with central banks now hiking interest rates in order to curb inflation, bond markets are taking a major drubbing as well.

As at 7 September 2022, global equity markets had lost almost 15% since the beginning of the year, while Danish government and mortgage bonds had lost about 12%.

We invest to grow your savings so that you will receive the highest possible amount of benefits when you retire. In our pension pools, equity and bond market losses are mitigated by positive returns on investments in infrastructure and real estate. The fact that your pension savings also include so-called financial contracts (interest rate swaps), which trigger a gain when interest rates go up, has also helped contain losses.

If you sign in to pension.dk, your savings overview will show exactly how much your savings have gone up or down – also historically.

See how your savings are developing

Your savings will go up over time

All our members have seen their savings decline due to rising interest rates and equity market turmoil.

Claus Stampe, PensionDanmark’s Chief Investment Officer, elaborates: ‘We invest in a wide range of assets (such as equities, bonds, real estate and wind farms), and we’ve made it fairly well through recent months’ market turmoil.

We’ve generated very strong returns over the past few years, causing our members’ savings to grow. In 2021, for example, all our members under the age of 46 received a return of 16.0%, while a 67-year-old member received 10.3%. So it’s important to keep in mind that your return will eventually turn positive again – and your savings will grow. Just like they did after the financial crisis in 2008 and the coronavirus crisis in Europe in 2020.’

Read more about how we invest your money

Updated on 7 October 2022.